Fusion Fuel Green (ticker: HTOO), in its Third Quarter 2023 Investor Update, discussed strategic moves aimed at enhancing its position in the clean hydrogen market. The company, known for its miniaturized PEM electrolyzer, the HEVO, announced a technology sale contract and two purchase orders totaling EUR4.2 million. They also reported a financing facility of up to $20 million with Macquarie and a pre-tax loss of EUR4 million (EUR1 = USD1.0787) for the quarter. Fusion Fuel Green expressed confidence in their 2024 revenue targets, emphasizing their engineering prowess and partnerships in various markets. Their expansion plans include at least six new green hydrogen plants in 2024 and a focus on the mobility sector, which shows the highest internal rate of return (IRR) in the hydrogen market.
Key Takeaways
- Fusion Fuel Green highlighted its HEVO technology as a key differentiator in the electrolyzer market.
- The company announced a technology sale and two purchase orders, projecting combined revenues of EUR4.2 million.
- A financing facility of up to $20 million was secured with Macquarie.
- Fusion Fuel reported EUR2.5 million in revenue for Q3 2023 and a pre-tax loss of EUR4 million.
- The company plans to launch at least six green hydrogen plants in 2024, with an expected revenue recognition of EUR34 million.
- They have designed and fully defined more than 10 green hydrogen plants in Portugal and Spain, with over 40 project proposals submitted.
- The company is targeting a 20% reduction in full-year 2023 SG&A costs and expects to reach cash flow breakeven in 2025.
Company Outlook
Fusion Fuel Green is setting ambitious targets for 2024, including the operational launch of at least six green hydrogen plants. They anticipate this expansion will significantly contribute to the expected EUR34 million in revenue. The company has already signed five projects for 2024, with two 1.25 megawatt green hydrogen plants projected to bring in approximately EUR4 million. Looking ahead, Fusion Fuel is aiming for profitability as one of the first electrolyzer producers, with a cash flow breakeven point in 2025.
Bearish Highlights
The company reported a pre-tax loss of EUR4 million in the third quarter of 2023. They also acknowledged the challenges in investing in large hydrogen plants due to the absence of industry-standard performance guarantees. This situation is expected to limit the number of large projects in the near term, leading the company to focus more on small to mid-scale projects.
Bullish Highlights
Fusion Fuel Green's partnership with Elemental Clean Fuels to enter the North American market and their engineering capabilities are seen as strong bullish points. The company's strategic focus on the mobility sector, which has the highest IRR, and their ongoing efforts to reduce costs while maintaining product quality, demonstrate their commitment to achieving cash flow self-sufficiency and long-term growth.
Misses
Despite the positive outlook, the company missed profitability this quarter, with a pre-tax loss reported. However, Fusion Fuel remains optimistic about its future profitability, with substantial revenue growth expected in the coming year.
QA Highlights
During the Q&A session, the company addressed questions about its headcount, which stands at 130-135 employees. They are considering a reorganization of staff rather than reductions. The company also discussed the potential for generating revenue from engineering services, estimating EUR500,000 in revenue next year and EUR1 million in 2025.
In summary, Fusion Fuel Green is actively positioning itself to capitalize on the growing demand for green hydrogen, with a clear strategy focused on technological innovation, market expansion, and operational efficiency. Their proactive approach to partnerships and project development, despite current industry challenges, signals a robust path forward for the company and its stakeholders.
InvestingPro Insights
As Fusion Fuel Green (ticker: HTOO) forges ahead with its expansion plans in the clean hydrogen market, InvestingPro data and tips offer a deeper financial perspective on the company's current standing. With a market capitalization of $15.52 million USD, the company is considered small-cap, which often brings with it a higher risk-reward ratio. The Price / Book multiple, as of the last twelve months of Q4 2022, stands at 0.49, indicating that the stock is trading at less than half the value of the company's book value, which can be a sign of undervaluation.
InvestingPro Tips suggest that Fusion Fuel Green is quickly burning through cash and yields a low return on invested capital, which could be concerning for investors looking at the company's ability to sustain its operations without continual fundraising. The company's stock also generally trades with high price volatility, which might be a deterrent for risk-averse investors but could provide opportunities for those willing to embrace the associated risks.
For readers interested in a more comprehensive analysis, there are additional InvestingPro Tips available, which can be accessed through the company-specific InvestingPro page: https://www.investing.com/pro/HTOO. These tips include insights such as Fusion Fuel Green's weak gross profit margins and the anticipation that the company will not be profitable this year.
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By leveraging these insights, investors can better understand the risks and potentials associated with Fusion Fuel Green as the company strives to meet its ambitious targets and establish a foothold in the burgeoning green hydrogen market.
Full transcript - Fusion Fuel Green (HTOO) Q3 2023:
Ben Schwarz: Hello everyone and welcome to Fusion Fuel Green's Third Quarter 2023 Investor Update. My name is Ben Schwarz and I'm Head of Investor Relations at Fusion Fuel. I would first like to remind everyone that this call may contain forward-looking statements, including but not limited to, the company's expectations or predictions, the financial and business performance which are based on numerous assumptions such as sales, margins, competitive factors, energy performance, and other factors which cannot be predicted. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions, and they are not guarantees of performance. I encourage you to read the disclaimer slide in the investor presentation for a discussion of the risks that may affect our business or may cause our assumptions to prove incorrect. The company is under no obligation and expressly disclaims any obligation to update, alter, or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Okay. So, greetings. Thank you all for joining us today. In terms of our agenda for the next hour, I'll kick things off with an overview of Fusion Fuel along with some perspectives on what we're seeing in the market currently. Gavin and Frederico, Fusion’s CFO and CEO respectively, will then share their quarter highlights, financial results and commercial updates before wrapping up with a recap of our 2023 priorities and our progress against them. We will then open up the floor for a facilitated Q&A. As in our previous quarterly calls, questions can be entered in the chat box in webcast platform at any point during the next hour. Alternatively, you can also submit your questions to the Investor Relations team at the IR mailbox, ir@fusion-fuel.eu. So as always, let's begin with a brief refresher on Fusion Fuel, our value prop positioning in the green hydrogen sector. So our mission is to make the energy transition more accessible through the development and delivery of cost-effective clean hydrogen solutions. Our patented miniaturized PEM electrolyzer, the HEVO, is at the heart of everything we do. Its simplified and modular architecture is a unique differentiator in a crowded electrolyzer market, one that unlocks multiple sources of advantage for us, including high-throughput industrialized production and a scalable building block approach that positions us to create customized fit-for-purpose hydrogen solutions. We built a robust pipeline of actionable near-term green hydrogen projects in our core market of Southern Europe, enabling us to create our own demand for our technology. Many of these foundational projects have significant grant funding tied to them, strengthening and de-risking the business case for third-party investors. We have a differentiated and synergistic business model that positions us across the value chain. In addition to selling our proprietary technology to third-party customers, we also originate and develop green hydrogen projects from start to finish with diverse avenues for monetizing value creation along the development cycle. And finally, we're positioned for a significant growth ramp as the market continues to mature with an extensive long-term project pipeline and a world-class production facility located in Portugal, where we're targeting 500 megawatts of electrolysis production per annum by the end of 2025. Despite the promising long-term tailwinds behind the green hydrogen opportunity, the industry is grappling with a number of fundamental challenges that threaten its trajectory. Rampant project delays, an electrolyzer on performance, scarcely affirmed projects and off-take agreements are but a handful of roadblocks the industry has had to navigate as early movers work to deliver on the lofty expectations they've set. Nevertheless, with the development, with the velocity rather, of our project pipeline and our unique technology, amongst other things, we believe we are uniquely positioned to overcome these obstacles. In many cases, we have a meaningful head start in doing so compared to our peers. So with that, I'll now introduce Gavin Jones, CFO of Fusion Fuel, to share some highlights from the third quarter of 2023.
Gavin Jones: Thank you, Ben. Good afternoon or morning to all of you who have joined our third quarter investor update call. I'm joining today from our offices in Ireland. During the third quarter, we were awarded a technology sale contract to supply a 300 kilowatt electrolyzer and balance of plant system from a leading global building solution supplier. We also entered into a partnership with Elemental Clean Fuels, a company focused on originating and developing clean fuel projects in North America. This partnership will provide Fusion Fuel with exposure to the emerging North American green hydrogen market and adds to our existing partnership with Duferco in Italy, whilst enabling the company to focus its near-term commercial efforts on the Iberian peninsula and northern Europe. After the end of the third quarter, we received two separate purchase orders for a combined EUR4.2 million of revenue. These projects will service customers in Portugal and will include the supply of our HEVO chain products along with balance of plant equipment and EPC services, and will each represent a 1.25 megawatt system. When I spoke with you back in early September, I commented that we were in discussions with both existing and prospective capital providers about financing solutions. We are pleased to share that we have entered into an agreement with Macquarie on a financing facility of up to $20 million which we announced last week. This agreement represents the culmination of a due diligence process that span multiple months. We are very pleased with the terms of this facility and perhaps equally as importantly the stature and quality of the counterpart in Macquarie. This is a convertible debt facility with a two-year term. The drawdowns will be done on a phase basis with the size of each tranche to be mutually agreed by both parties, depending on our cash flow needs at the time. Macquarie will receive warrants equal to 30% of the aggregate amount funded. The warrants will have an exercise price equal to 130% of the volume weighted average price for the five trading days immediately [proceeding] (ph) any tranche issuance. There are certain conditions that must be met before we operationalize this facility, such as completing the required SEC filings. We are working on these and expect to close them during the first quarter of 2024. This facility will provide us with the capital needed to execute our 2024 objectives. We will now move on to the financial results for the third quarter. Please note that all values discussed are in euros unless stated otherwise. We recognized EUR2.5 million in revenue during the third quarter. This represents the revenue related with our green hydrogen project in Madrid. Provisional acceptance of this project was achieved in September of this year. Of the EUR2.5 million recognized, EUR0.7 million is accrued and this cash is expected to be received within the next 60 days. Back in the first quarter of 2023, we recognized revenue relating to a technology sale contract. Our customer's intention was to complete this project as part of Portugal's POSEUR program. During the third quarter, it became apparent that this project would not proceed, as it wouldn't be completed within the timeframe set out in their grant agreement with the Portuguese government. We reversed the revenue and associated cost of goods sold for this contract during the third quarter and this reversal is shown as part of the second quarter column for comparative purposes. The revenue reverse amounted to EUR0.5 million. Please note that we still expect to complete this sale with this client for further project they have planned. As you may remember from our second quarter investor presentation, we booked a provision for impairment of EUR7.2 million against our legacy HEVO-Solar inventory. During the third quarter and into the fourth quarter, we have continued to sell or scrap this legacy equipment. We expect this process to continue for the foreseeable future. The inflows received as part of this process have been offset by an increase to the provision of EUR0.5 million during the third quarter. Our operating cost base decreased for the third consecutive quarter. We saw a reduction to our personnel related costs of EUR0.26 million when compared to the second quarter. This was due to the continued reduction in our headcount, coupled with the fact that the second and fourth quarter typically have higher costs due to vacation subsidies being paid to our Portuguese-based employees. This was coupled with further reductions to travel, administrative, legal and consulting fees but was somewhat offset by an increase in R&D expenses. Our quarterly charge relating to our equity incentive plan increased by EUR0.28 million during the third quarter. The second quarter amount was lower due to a one-off reduction for the forfeiture of a significant number of instruments. There were no new rewards during the third quarter and none expected for the fourth quarter. We expect a non-cash quarterly expense of EUR0.6 million for legacy share-based compensation until the end of 2024. The pre-tax loss for the quarter amounted to EUR4 million. In terms of the balance sheet, the increase to property, plant and equipment is driven by the booking of new equipment that was invoiced during the quarter for our Benavente production facility. This increased the value of this asset by EUR2.8 million. The inventory balance shown is net of the impairment charge which was discussed earlier. The significant decrease since the second quarter is down to the revenue recognized. Until we recognize this revenue, the equipment used related to this revenue was recognized as part of inventory. Our bank balance was just over EUR1 million on September 30th. Since then, we have received EUR2.1 million in grant funding with a further amount of EUR0.4 million due in addition to client inflows before the year is out. We have significant grant demands expected for 2024 which will mostly be to reimburse us for spend relating to R&D and our Benavente production facility. Given that we are now receiving customer inflows monthly, we are satisfied that the operational inflows coupled with the drawdowns from the Macquarie facility will enable us to have a strong 2024. The other notable movements include a reduction of EUR2 million in the fair value of warrants, an increase to trade payables as we booked the equipment for Benavente as mentioned above, and grant income of EUR2.3 million received during the third quarter. Over 16 trading days in the third quarter, we raised EUR0.6 million cumulatively by selling 376,000 ordinary shares through our ATM facility. No sales have been made since September 20th. Next slide, please. We revised our 2023 guidance in the second quarter, and we expect this guidance to hold true. We have significant equipment to deliver during December for two active technology sale contracts. For 2024, we expect to recognize revenues of EUR34 million. As this slide shows, this total can be attributed to two different categories, technology and balance of plant equipment sales, and the sale of projects from our own portfolio. The technology and balance of plant demands are already backed by committed orders. We have not included any estimate of further equipment sales from our pipeline as if we were awarded contracts the timing of revenue recognition is too uncertain right now. For those familiar with our development project pipeline we have two projects in Sines, Portugal that have been awarded a combined EUR32.5 million in grant funding from the Portuguese government. The revenue guidance for 2024 assumes that we will sell our Sines 1 project to an infrastructure fund and convert the project into a technology sale that will include balance of plant and EPC services. Frederico will touch upon the status of our technology and development project pipelines a little later. From a cost perspective, we continue to work through our budget for 2024. It's imperative that we keep our costs as slim as possible, given the general uncertainties in the global hydrogen economy. Right now, we have a lower cost base when compared to our competitors, and we are working to reduce this further, without diluting the quality of our products and ancillary services. As noted earlier, our cost base has reduced for three consecutive quarters and we will look to continue this trend into 2024. Our goal continues to be reaching cash flow self-sufficiency as quickly as possible and keeping costs low is critical to achieving this. I will now pass you over to our CEO, Frederico, who will guide you through the rest of the presentation.
Frederico Figueira de Chaves: Thank you, Gavin. And good afternoon, good morning to you all. I'm pleased to share with you today the latest news from the numerous activities we have going on. I want to note that many people speak about green hydrogen and announce large future plants. In reality, very few companies have plants that are live and producing green hydrogen today, and few have the expertise to install a green hydrogen plant safely. Through the process of having the Madrid plant live, we have seen firsthand the benefits of our modular solution, with the occasional teething problems of the plant only causing the loss of a few days of production rather than full plant shutdowns as others have suffered. We have the pleasure of having hydrogen plants in Portugal and Spain, as well as a laboratory that is not only testing the next generations of materials for future HEVO releases, but is also ensuring we run thousands of hours on our existing versions to ensure degradation rates and material behavior. During 2024, we expect to put at least another six green hydrogen plants into operation and the experience from these first projects from our lab and our own production facility has been critical to close these contracts. I would like to highlight today our engineering capabilities as they are not only a differentiating factor but have also been a crucial one in closing the various equipment sales we have signed. Few clients have the experience and knowledge required to design, implement and go live with a fully-fledged green hydrogen plant. In addition to submitting electrolyzer proposals for over 40 projects, our engineering team has fully designed more than 10 green hydrogen plants in Portugal and Spain to date. This includes ATEX and HAZOP studies, licensing processes and fully defining the specifications for all equipment in the plant. Given the challenges that some hydrogen projects have experienced recently, using an experienced and proven player is of increasing value to clients. This allows us to create a partnership with clients that goes beyond simply delivering equipment. We have already received requests for engineering auditing services where a client wants us to review their plant design, in addition to requests to fully develop the engineering solutions for even alkaline electrolyzer systems. This confidence and trust in our engineering capabilities will not only be a major selling point for Fusion Fuel, but we expect to generate independent revenues from these services as early as next year. More and more, the proposals requests we are receiving are for full plant designs, and these tailor to the specific client requirements. We have designed plants with hydrogen usage at a pressure of 2 bars, as well as one reaching even 1000 bars, and also of various sizes, from 300 kilowatt plants all the way up to 10 megawatts so far. The use cases include plants for hydrogen mobility, gas blending, tube trailer filling, and for use in industrial furnaces. What you see here are renders from three of the 10 projects that the team has designed and provided full specifications for. In an initial step, we provide preliminary engineering for the equipment in offer, and then we charge for engineering services for detailing and designs beyond stage 1. There are companies that can deliver this type of expertise. For markets, there are a few companies that can deliver this type of expertise. For markets where we do not have full engineering capabilities, we look to establish partnerships with players that have a know-how for their specific market. The partnership we entered into in Italy and also in the Middle East with TCC is a good example of such cases. As we announced at the end of September, we will be delivering a 300 kilowatt green hydrogen plant for a global leader in the cement sector. This includes the HEVO-Chain electrolyzer along with full plant design and implementation along with a local partner. This plant uses our already announced HEVO-Chain technology, in particular the Cube solution which is modular at 20 kilowatts per unit. In the image you can see the first HEVO-Chain demonstrator that has already been installed in our Evora plant, which uses multiple HEVO-Chain cubes in synchronized production. In addition, it is the first part where we will be using our new oxygen capture system as the client has used for the green oxygen as well. So we'll be using our new oxygen capture system, sorry, as the client has used for the green oxygen as well. This project is currently in development and is expected to be fully installed and operational in the first half of 2024. More recently we announced the order of two 1.25 megawatt green hydrogen plants that will also use the HEVO-Chain system for installation in 2024 in Portugal. As you can see, we will not only provide the electrolyzer unit, but also do the full plant design, POP equipment selection and purchasing, and oversee the installation. We expect to book approximately EUR4 million in combined revenues from these two projects in 2024. These projects consist of multiple HEVO-Chain cabinets as shown in the render where each contains around 50 kilowatts of electrolyzer capacity, still providing significant modularity for the client and reducing costs by reducing the number of connections, valves and pipings used in the solution. As we've said before, we made a significant push on our technology sales efforts at the start of the third quarter of this year. In addition, we continue to receive requests for engineering services that we will evaluate on a case-by-case basis, but which we expect to generate revenues from this activity during 2024. We have submitted around 50 proposals to third-party projects, all with a HEVO-Chain modular system. We do not see the industry executing more than a few very large projects in the next two years. Simply put, and as has been demonstrated in several cases, the industry is not prepared for such projects and companies cannot provide the performance guarantees that would allow a client to take such risk on a project. We believe the next years we'll primarily see several, if not many, projects below the 10 megawatt size being implemented. This is where we have focused our commercial efforts and where we believe not only our technology shines but it avoids us taking outsized balance sheet risks when providing warranties for these systems. As Gavin mentioned, our revenue target for 2024 is EUR34 million, although our inflows may differ given how some proceeds can only be recognized towards the end of the delivery to the client. These EUR34 million are based on the projects and activities listed on the right. We already have five project signed and confirmed for 2024 and we are in the negotiation phase of selling our Sines 1 project. These six projects alone would allow us to meet our targets, leaving still some room for further revenues from proposals that we are waiting to hear back from, and also from new engineering services. As we have seen these previous years, the exact go live date of a project is hard to predict. And therefore, in our revenue guidance, we've only included those that have already been confirmed for 2024, have already started and are seen as one project. So there is still potential for upside from new sales as the pipeline matures. We're in a position where we believe we have significantly de-risked the revenue guidance for 2024, as well as allowing us to expect cash inflows and revenue bookings from clients quarterly going forward, as opposed to the one-off bookings we have seen previously. The hydrogen market has been slow to take off, but we are seeing significant movements now, particularly in the project size where we excel, so we are very excited to capture part of this growth as the industry really comes into its own. To finish off, I will briefly cover the strategic priorities we had laid out for the year and where we stand against those. As I've just highlighted, we have made substantial progress on the technology sales activities, with several of the proposals in the table in the slide before being for projects beyond southern Europe. With the announced tranche financing facility that was signed with Macquarie, we believe we have significantly addressed one of the largest concerns that has hampered our company in the last year or so. This facility, a result of several months of due diligence and discussions, is not only with a first rate partner, but also of a size that allows us to focus on business execution for the future. In addition, the conditions for this facility, in particular with its pricing, related only to each tranche executed, are fair and attractive for shareholders. They avoid the brutal dilution that we have seen in office throughout the year and are -- is designed with enabling the company to reach its goal, rather than simply benefiting only the partner providing the capital, as many of the deals in this capital constrained environment can end up [being] (ph). As mentioned, we've been designing projects for 5 and 10 megawatts, and in theory we can deliver larger projects using such building blocks. However, for the midterm, our focus will be on the 10 megawatts and under projects to avoid overextending ourselves and hoping to avoid the need for large warranty provisions as we have seen from others in the market. As Gavin mentioned, we are actively reducing costs, but also throughout this process ensuring that the resource allocation in the business matches where we see the upcoming need and development of the markets. This is a process that is well underway but still in progress. Therefore, we won't comment much more on this except to say that our focus is to have an organization that is sized and driven to help us be one of the first companies to reach cash flow break-even in the industry. Growth beyond Europe and in some European markets is only possible with strong partnerships both from a commercial and production aspect. We've already established partnerships in the North American market and for Italy and also for the Middle East, as mentioned, and we will continue to expand these where we believe it makes strategic sense for the company. We're making substantial progress on all these key elements, and we're excited to be approaching 2024, as we can truly highlight how much of a pivotal role Fusion Fuel can play in this industry. We will already be reaching some peers that have much higher valuations in terms of revenue booked and we have much lower cost-run rates. We have a modular technology that provides lower risk in terms of future warranty provisions and expenses. So we look forward to executing with drive and excellence on our plans for 2024. With that, I'll close today and open up for Q&A.
A - Ben Schwarz: Thanks, Frederico. Just a quick reminder, for those of you who have questions for management, you can submit them in the chat box, in the webcast platform, or you can also submit them via email to ir@fusion-fuel.eu. So for now, let's begin with some questions from Jeffrey Graham from Alliance Global Partners (NYSE:GLP). First question is, are you seeing any particular use cases having stronger business models in this tightened hydrogen market?
Frederico Figueira de Chaves: So I'll take that Ben. So from that side, right now we see a bit of everything. So of course the use cases that have the highest IRR at this point in time is mobility, where there is enough of a fleet to justify the CapEx related. The hydrogen per kilo basis is one of the more expensive in terms of uses in the hydrogen industry. So this is one of the use cases that's most attractive today. That said, we do see a lot of projects starting where people really want to learn more about hydrogen, how it impacts their business, and then preparing for the future. The project that we mentioned before with one of the world-leading cement companies is exactly that, a project where they expect that hydrogen will be a core element of their business going forward, and they want to learn how their furnace and so on reacts when mixed with hydrogen. So from an IRR perspective, simply at this stage, I would answer that it's mobility, but we're seeing more and more industrials taking the plunge and betting on hydrogen for their decarbonization purposes and their longer-term views of their needs.
Ben Schwarz: Thanks, Frederico. On the priority slide, you alluded to progress made on submitting offers to projects or opportunities in Northern Europe. Can you provide an update on that?
Frederico Figueira de Chaves: Sure. So we continue to provide offers to Northern Europe and these at this time have been all around the mobility sector. So we have just now submitted offers to other countries with UK, France, and beyond as well. We expect this to continue. What we are seeing is that it takes quite a bit of time between getting offers submitted and the clients taking their FID on the projects, mainly as they go through the process of negotiating offtake. So we do expect to continue to see more offers going to Northern Europe, although it might take us some time to hear back on positive or negative decisions on FID.
Ben Schwarz: Thanks, one more for you. Can you provide any examples of the type of projects where you might monetize your engineering services and what that revenue opportunity might be on a per megawatt basis?
Frederico Figueira de Chaves: Sure. So this is hard to map out on a megawatt basis. Very often the project is mainly due to the project complexity in the end case of a client. So a project that requires hydrogen and /or oxygen without purification at 2 bars is very different than one that needs them pure at 500 bars. So it's really on a project by project basis. We have seen several cases as all of the projects that we have today, where people do want us to not only do the full design of the projects, but also the specifications of what the balance of plant is, so what compressor to use, what power system to use, what purifiers to use, and so on. And then we put them in touch with the right buyers, we design, we do the full engineering mapping of the projects. Currently we've targeted hoping to reach EUR500,000 of revenues next year in terms of engineering services and hoping to in 2025 get that to reach a million euros. This is still early numbers as we are going through some engineering offers even as recently as today, just having some offers being sent on that. So we're still building the business case on our engineering services. But given the strong demand for such services, we do expect to be booking revenues for it already next year.
Ben Schwarz: Thanks, Frederico. Pivoting to Gavin now, question here. What's the magnitude of cost reduction potential you are reviewing? Is there an internal target or anything that you can communicate at this time?
Gavin Jones: Thanks, Ben. So again, to reiterate our position from our Q2 investor presentation back in September, that cost review that we embarked is still ongoing. It has been very, very detailed. And as I mentioned previously, we're still working on finalizing our budget. But in terms of looking at that number or percentage internally, we're trying to get as close to a 20% reduction on our full year 2023 SG&A. And I suppose that's probably why the review is taking so long and we'll continue for some time as well because as I mentioned in my remarks, it's very important for us to have a slim cost base, and we see that as being a key driver to us being successful. So it's so important that we take the time and leave no stone unturned when it comes to cost. So yeah, hopefully that answers the question.
Ben Schwarz: Thanks, Gavin. A question from Erwan Kerouredan from World Bank of Canada. On the third quarter pipeline slide, we show 45 proposals for EUR172 million in prospective revenues, these are the [outbounded] (ph) offers, versus 41 proposals for EUR222 million in the previous iteration of the slide from the second quarter that applies a decline in the average value per project or per order from EUR5.5 million to a little under EUR4 million per order. Can you provide any commentary on that distinction or difference?
Frederico Figueira de Chaves: Absolutely. And whilst possible, we have simply done is we have stripped out the balance of plant revenues from that sales pipeline so that it's focused around the electrolyzer sales rather than balance of plant equipment. In the end, the balance of plant equipment sales for a project will be determined by the client to what extent we will be involved in providing those and the gross margin that we will be able to provide on that balance of plant can [differ] (ph) substantially project to project. So for -- in order to ensure the more like to like purposes for the active proposals, and we've really kept it to the electrolyzer portion of the proposals.
Ben Schwarz: Great, thanks. Moving to capital strategy now, perhaps for you Gavin, how are you thinking about the ATM facility in light of the recent financing with Macquarie? Will you look to utilize the ATM going forward?
Gavin Jones: Sure. So, as I mentioned, we haven't used the ATM since September 20th, I think it was the last trading day. We have no immediate plans to reengage activity on the ATM. And just to be very clear, it is one of the conditions for operationalizing the Macquarie deal is that the ATM facility is cancelled. So no, that is the answer, both in terms of current or expected future use of the ATM.
Ben Schwarz: Great, thanks. And I want to follow up there. With the solutions currently in place between the Macquarie convertible project inflows and grant funding, does that get you to the cash position needed or will you consider additional fundraising efforts?
Gavin Jones: I'll start with the annoying phrase of it really depends. So it depends on whether we witness further delays in both project financing and execution of those projects. So if they're delayed, the amount of capital required could and can and probably will change substantially. We move with caution here, given the recent delays witnessed throughout the industry. And probably most importantly, as we noted in our investor letter, The structure of the Macquarie facility allows us to pursue complementary forms of financing and other strategic sources of capital that would further strengthen our balance sheet if needed.
Ben Schwarz: Thanks, Gavin. A question here about the timeline to profitability or cash flow breakeven?
Gavin Jones: Sure. So, we expect this at some time during 2025. This is a good follow-up point to the previous question, Ben, as again, it comes back to the point of it depends. So if everything plays out as we forecast and as we expect and we finalize the cost review and get our costs as slim as possible, we hope it will be or we plan it to be during 2025, but don't expect it to be during next year.
Frederico Figueira de Chaves: Ben, I will simply add that we will still be one of the first, if not the first, electrolyzer producers who reach that milestone given our low cost base.
Ben Schwarz: Okay, so no pressure Frederico. Frederico, for you, do you see the recent political issues in Portugal having an effect on the business, for example, in the form of delays in permitting or receipt of grant funds?
Frederico Figueira de Chaves: So naturally this was one of our big concerns, especially on the day that the news came out and the recent political turmoil a few weeks ago that kicked off in Portugal. Since then, we have actually seen the monetizing of various grants. We've seen a number of items that we had with the government moving forward. So we have actually seen relatively normal operations within the government. So, at this point in time, our projects have not been affected by the turmoil in Portugal. I will just note that what we have seen or what we expect delays is around programs the government was about to launch. So for example, there was the green hydrogen auction in Portugal that was expected to launch towards the end of this year. That naturally will be put on hold until the new elections happen in early 2024. But the projects themselves have not been delayed, although some of the government programs have. None of the projects we had, we’re expecting -- we’re awaiting for that auction, so it doesn't impact the revenue sort of guidance that we've given for 2024. In addition, the launch of the European Hydrogen Bank, which has recently been put out all of the rules and regulations around it and have opened up calls for this has also meant that clients who have considered going for 1 auction can now go for the European Hydrogen Bank auction instead. So the impact from the Portuguese government has been minimal.
Ben Schwarz: Thanks, Frederico. Very helpful. There was a question as well on the hydrogen auction in November. So that was helpful clarity there. A question here on mobility, so clearly a priority market for the company. Does management have a perspective on the future of hydrogen in mobility versus EVs? And then anything else of note to touch on regarding strategic partnerships in this space?
Frederico Figueira de Chaves: So I would note, [far be it] (ph) from us to get tried into the debate of which is better between the Hydro and EV sort of discussion to note, I personally and I think most of the executive committee of Fusion Fuel believe that there is a market for both. In particular, places which need fast charging, it avoids the need for having multiple batteries or whether you need to carry sort of large loads. There's a big case to be made for hydrogen or even hydrogen derivatives, be it ammonia as fuel as well. So we think in our view is that there will be a market for both EVs and hydrogen mobility in all their elements. So we've seen this across the board. All the discussions with our clients also seem to point to that fact that it is not an either-or, but actually a combination of both in their aim to decarbonize mobility.
Ben Schwarz: Thanks, Frederico. A question here on performance guarantees. Can you touch on the ability of or need for players in this space to provide those guarantees, particularly on larger projects?
Frederico Figueira de Chaves: Thank you, Ben. I think this is a really important topic that in the industry is not discussed enough. Effectively, we have to keep in mind that when someone wants to do a 100 megawatt project, they're spending like the EUR150 million or more on the full hydrogen plant, which is a substantial CapEx risk for any infrastructure player or client. Now with that traditionally you would expect to get performance guarantees and warranties for several years to back up a CapEx investment of that size. To date, the industry does not provide or as far as we have seen, does not really provide performance guarantees, especially for the very large projects. Therefore, whoever is doing a large investment, needs to determine how much capital they can truly put at full risk. So we have seen one, let's call it a large US competitor, has gone through the approach of putting substantial cash deposits and cash collateral with banks in order to finance some of the larger equipment sales. This is a substantial risk to anyone's balance sheet, especially with technology that has not yet had years and years of proven track record. So this is why we believe that there will be a few projects, large projects being done in the next two to three years. The majority of projects will be in the small to mid-scale where the risk for both parties, both the project buyer or investor as well as the companies providing the equipment is manageable. So I think this is really important because it will limit the amount of large projects in the next two to three years until the industry is more mature. For us, it's an advantage because our technology really plays in that small to mid-cap sort of area.
Ben Schwarz: Perfect, thanks, Frederico. Last question here pending any more that come through. Can you perhaps, Gavin, comment on current headcounts in the context of the cost structure and their need based on current and expected sales?
Gavin Jones: Yeah, sure. So I think we've gone on a journey in terms of headcounts over the past 12 months. We're probably roughly around the 130, 135 mark at the minute, probably close to the 130. I think the important thing to point out is that the salary costs within Portugal are a lot lower than a lot of other countries within the EU and also, compared to the likes of North America and even Australia. So that is included within our cost review process, but we think, and I think I touched upon this in the quarter two presentation, was that it might not be a case of reducing the headcount, but more rationalizing the headcount and moving people from one department to a different department. I think as Frederico pointed out in his slides, this engineering stream that has come to the fore in recent months, do we have the team fit for purpose for that? And do we have resources in other areas of the organization that could assist and even promote that stream even further? So that is something, it's a very good question and it's something that we actively look at and right now we think we've got a positive mix. But as I said, that's something that we look at on an ongoing basis.
Ben Schwarz: Perfect. Thank you, Gavin. So in the absence of any additional questions, I think that will do it for our third quarter webcast. So thank you for everyone who's joined. If you have additional questions or if you'd like to speak with myself or with management, please feel free to reach out to me and the IR team at ir@fusion-fuel.eu and we look forward to seeing you all again at our next update.
Frederico Figueira de Chaves: Thank you.
Gavin Jones: Thank you all.
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